Does the Bullwhip Matter Economically? A Cross-Sectional Firm-Level Analysis

46 Pages Posted: 14 Aug 2018

See all articles by Opher Baron

Opher Baron

University of Toronto - Operations Management

Jeffrey L. Callen

University of Toronto - Rotman School of Management

Dan Segal

Interdisciplinary Center (IDC) Herzliyah

Date Written: August 13, 2018

Abstract

This paper investigates whether the bullwhip effect has economic consequences at the firm level. The bullwhip effect refers to the amplification of demand variability from a downstream site to an upstream one. Simply put, the bullwhip effect manifests when input production (in the case of manufacturing firms, orders in the case of retailers) is more volatile than output/product demand. In particular, we examine the relation between the bullwhip and various accounting/financial performance measures including equity returns, cash flows, operating costs, earnings, and earnings attributes such as earnings persistence, using a large panel of cross-sectional firm-level data. Performance is measured both in terms of first-moment mean effects and second-moment volatility effects. Contrary to the maintained assumption of operations management scholars, our analysis yields results that are inconsistent with the notion that the bullwhip has significant negative economic consequences at the firm level. In particular, we find almost no significant statistical/economic relations between accounting/financial measures of profitability and the bullwhip, both with and without covariate controls. These results are also robust after controlling for the potential endogeneity of the bullwhip.

Keywords: Bullwhip Effect

JEL Classification: M40

Suggested Citation

Baron, Opher and Callen, Jeffrey L. and Segal, Dan, Does the Bullwhip Matter Economically? A Cross-Sectional Firm-Level Analysis (August 13, 2018). AAA 2019 Management Accounting Section (MAS) Meeting, Available at SSRN: https://ssrn.com/abstract=3230368

Opher Baron

University of Toronto - Operations Management ( email )

105 St. George st
Toronto, ON M5S 3E6
Canada

Jeffrey L. Callen (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-5641 (Phone)
416-971-3048 (Fax)

Dan Segal

Interdisciplinary Center (IDC) Herzliyah ( email )

P.O. Box 167
Herzliya, 46150
Israel

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
34
Abstract Views
199
PlumX Metrics